What is a free trade zone?
A free trade zone is a type of Special Economic Zone (SEZ), which refers to an economic zone that is exempt from trade-related charges such as duties and taxes.
In these regions, goods manufactured, stored and handled are subject to different customs preferences. They often receive relief and incentives to encourage investment.
Here is the OECD definition of a free trade area:
"Countries that generally remove tariff and non-tariff trade barriers among member countries but have no common trade policy for non-member countries"
-Organisation for Economic Co-operation and Development (OECD)
The benefits of a free trade zone include:
- Promote trade and business opportunities
- Reduce logistics costs
- Reduce red tape and bureaucracy
- Increase foreign exchange earnings
- Create job opportunies
- Attract investment
History of Free Trade Zones
To understand the history of free trade zones, we must look at the general category: Special Economic Zones (SEZs).
There are many different variations of the term SEZ. But they are all built for the same purpose.
The first SEZs are simply called "free zones" and are designated areas, usually adjacent to seaports, airports or between two or more countries. These started in the 1960s and started growing exponentially in the 1980s.
Today, there are more than 5,400 SEZs around the world. Of these, 1,000 were established within the past five years. Experts expect more than 500 new special economic zones to be established in the next few years.
- North American Free Trade Agreement (NAFTA)
- EU single market
- African Continental Free Trade Area (AfCFTA)
- Association of Southeast Asian Nations Free Trade Area (AFTA)
- Special Economic Zones in China
